DVC to renegotiate price for coal from EMTA joint venture

Together with West Bengal-based EMTA Group, DVC formed DVC EMTA Coalmines in 2005 to mine the Barjora (North) and Khagra-Joydev coal blocks in the eastern state. Photo: AFP

Updated: Thu, Jul 11 2013. 12 06 AM IST

New Delhi: State-owned power generator Damodar Valley Corp. (DVC) is seeking to renegotiate the price at which it will buy coal from a joint venture in which it is a minority partner—an intriguing case in the saga of controversial coal block allotments.

Together with West Bengal-based EMTA Group, DVC formed DVC EMTA Coalmines Ltd in 2005 to mine the Barjora (North) and Khagra-Joydev coal blocks in the eastern state.

EMTA, formerly known as Eastern Mineral and Trading Agency, which on its website describes itself as the pioneer of captive coal mining in the power sector, has a 74% stake in the venture to mine the coal blocks that had been awarded to DVC, which holds the remaining 26%.

The joint venture was converted from a partnership into a joint stock company without DVC being aware of the development. And the rights to mine the mineral vest in this company. The title to the land that has been acquired for developing the mines vests with EMTA.

“While the blocks were allocated to DVC, the mineral rights are in the name of DVC EMTA Coalmines Ltd. The surface rights, or the land, is in EMTA’s name,” said a Delhi-based power sector expert aware of the development. “These should have been in the name of DVC. It was the DVC board which decided that the contract should be revisited some time back.”

The person requested anonymity given the sensitive nature of the issue.

However, the EMTA Group spokesperson said that the mining leases and survey rights for the DVC’s blocks had been registered in the joint venture’s name.

Coal block allocations and ensuing joint ventures have been controversial since the Comptroller and Auditor General of India (CAG), the government auditor, said in a report in August 2012 that the national exchequer had suffered a loss of Rs.1.86 trillion because of a flawed allocation process. The Central Bureau of Investigation (CBI) is probing the allotments.

“The coal block allocation process, given the necessity of captive mining, has been in evolution stage with every emerging solution creating more challenges of compliance and monitoring,” said Dipesh Dipu, a partner at Jenissi Management Consultants, a Hyderabad-based resources-focused consultancy.

“The allocation letters that may have been issued in the earlier rounds of allocation may not have clearly specified the boundary conditions of end-use, ownership, hiring of contract miners, use of coal rejects if washed and such other critical issues.”

DVC EMTA Coalmines had been set up as a partnership, but its structure was changed to that of a company without DVC being informed, the person cited above said.

“There is nothing under Companies Act which allows a company to be a successor entity of a partnership. They can’t do such things. DVC also wants to revisit the pricing of the coal and wants a cost plus payout. EMTA bid 20% discount to Coal India Ltd’s price and won the bid, which was interestingly called for even before the block was allocated,” the person said.

He said: “The renegotiation of the contract is on a new mechanism for pricing. How does it matter who owns the mineral rights and surface rights? Everything is going on smooth. These issues will be settled. We are totally transparent.”

The joint venture, formed through a competitive bidding process, gave DVC access to coal at a cheap price without the need to make any investments on its own, a spokesperson for EMTA said.

EMTA and Singareni Collieries Co. Ltd participated in the request for proposal invited by DVC for a partner. Under the arrangement, DVC gets coal at a price which is at a discount to the prices charged by state- owned Coal India Ltd (CIL), which at that time were finalized on the basis of useful heat value (UHV). In the beginning of 2012, CIL moved to pricing based on gross calorific value (GCV) from the UHV. Unlike GCV, UHV is a parameter which can’t be established through laboratory experiments. It is formula driven and discounts for ash and moisture content.

EMTA has tie-ups in place with the state power utilities of West Bengal, Jharkhand, Karnataka and Punjab, apart from DVC, for developing the 10 captive blocks allotted to them with in-place reserves of around 900 million tonnes (mt).

“Acquiring the land under the JV’s name was easier as compared to a PSU (public sector undertaking) doing (so) as people ask for all kind of settlements including jobs. The move was a tactical one. The acquired land is now being transferred to DVC,” said the EMTA Group spokesperson.

The spokesperson also conceded that DVC hadn’t been informed about change in the joint venture agreement that altered DVC EMTA Coal’s structure from a partnership to a joint stock company.

When the joint venture agreement was signed, “it was clearly written that this partnership firm can be converted into a company”, the spokesperson said.

“Everybody else has done it except DVC. The agreement was that when the change had to be made, DVC was to be informed. We may have missed that,” he said.